Medical Facilities Receives $25 Million Balance Sheet Injection

Summary

• MFCSF has closed on the sale of the real estate assets underlying Unity Medical and Surgical Hospital.
• Gross proceeds will be used to reduce the outstanding balance on MFC's operating credit facility.

Medical Facilities Corporation, a Canadian listed healthcare holding company with ownership in several U.S. surgical hospitals and ambulatory surgery centers, announced last week that they had completed the sale of the real estate as the second part of their Unity Medical and Surgical Hospital ("Unity") restructuring. All amounts below are in US dollars unless otherwise stated.

The real estate sale provides a substantial boost to MFC's balance sheet, with gross proceeds of approximately $25 million to be used to reduce the outstanding balance on MFC’s operating credit facility. The sale amount is below MFC's original investment of $27.6 million. MFC had $84.8 million drawn and outstanding on its $150 million operating credit facility at the end of March 2020.

MFC announced that they had reached an agreement for the sale of the real estate back on February 26, 2020, when they also announced the first part of their Unity restructuring plan, that they had sold the majority of their interest in Unity to a group of local investors comprised of members of leading physician groups, decreasing MFC's ownership in Unity to 31.7% from 87.6%.

With the sale of the majority of their interest in Unity, and now the sale ofthe associated real estate, plus the sale of Central Arkansas Surgical Center at the end of 2019, MFC has shown strong commitment to addressing underperforming assets and strengthening their balance sheet.

The company pays a dividend of CDN$0.07 per common share per quarter, or CDN$0.28 per common share on an annualized basis, representing an annualized yield of 6.45% based on the June 30, 2020 closing price of CDN$4.34 per common share. Based on the June 30, 2020 Canadian to USD exchange rate, MFC's dividend distributions in the first quarter of 2020 totaled approximately $1.6 million (approximately $6.4 million on an annualized basis), representing a payout ratio of 24.6% in the first quarter of 2020.

While it is expected that the company will report somewhat weaker results for the second quarter due to the COVID-19 pandemic, the current dividend level should be more than sustainable, especially after today's balance sheet injection (MFC can use its operating credit facility to fund dividend distributions, if needed). On top of that, constraints on elective surgeries could dissipate in coming months, and when they do, it is expected that MFC's hospitals and ambulatory surgery centers would have significant pent up demand to service.